By Ali Imran
ISLAMABAD: Pakistan has continued to make headway in restoring economic stability and rebuilding external buffers, Fitch Ratings said in a note on Thursday.
It added that progress on difficult structural reforms would be key to upcoming International Monetary Fund (IMF) programme reviews and continued financing from multilateral and bilateral lenders.
The State Bank of Pakistan’s (SBP) decision to cut the policy rate to 12% on January 27 underscored recent progress in taming inflation, Fitch noted. Consumer price inflation fell to just over 2% year-on-year in January 2025, down from an average of nearly 24% in the fiscal year ending June 2024 (FY24).
It wrote that rapid disinflation reflected fading base effects from earlier subsidy reforms and exchange rate stability, supported by a tight monetary stance that subdued domestic demand and external financing needs.
Economic activity is now benefiting from stability and falling interest rates, having absorbed tighter policy settings, Fitch added. It expects real value-added growth of 3.0% in FY25, noting that private sector credit growth turned positive in real terms in October 2024 for the first time since June 2022.
Strong remittance inflows, robust agricultural exports, and tight policy measures helped Pakistan’s current account post a surplus of about $1.2 billion (over 0.5% of GDP) in the six months to December 2024, reversing a similarly sized deficit in FY24.
Fitch said that foreign exchange market reforms in 2023 facilitated this shift. It had anticipated a slight widening of the current account deficit in FY25 when it upgraded Pakistan’s rating to ‘CCC+’ in July 2024
Foreign exchange reserves are set to exceed targets under Pakistan’s $7 billion IMF Extended Fund Facility (EFF) and Fitch’s earlier projections. Gross official reserves reached over $18.3 billion by end-2024, about three months’ worth of external payments, up from around $15.5 billion in June.
